The Czech economy was hit through the external trade channel during the recent crisis, but it had no significant domestic imbalances, so macroeconomic policies had room for supporting activity and the recession was relatively short. Nevertheless, the recovery is less dynamic than in other economies in the region and further risks are arising from the international slowdown and sovereign debt crises. The government should therefore continue a broad based reform programme to enhance economic growth and make it more robust to economic shocks. It should build on past recommendations to improve the business environment, strengthen the education system, promote innovation and increase labour market flexibility. This Survey focuses on challenges in the following areas..